The Federal Reserve adjourns from a scheduled, 2-day meeting today. It’s one of 8 scheduled Fed meetings for 2010.
Upon adjournment, Fed Chairman Ben Bernanke & Co. will release a formal statement to the market. In it, the Fed is expected to announce “no change” in the Fed Funds Rate.
The Fed Funds Rate is currently in a target range of 0.000-0.250 percent.
The Fed Funds Rate is an inter-bank lending rate. It’s also the basis for Prime Rate, a consumer interest rate on which credit card payments are based, among other consumer loans. Prime Rate is equal to the Fed Funds Rate + 3 percent. Credit card rates, therefore, will likely stay flat today, too.
Mortgage rates, however, should change. Possibly by a lot. The 30-year fixed mortgage does not correlate with the Fed Funds Rate (as shown in the chart at right).
The reason mortgage rates will change today is because, in its statement, the Federal Reserve will highlight various parts of the economy, identifying strengths, weaknesses and probable threats to growth.
These observations influence investors with a stake in bond markets and future returns and, with Wall Street on edge right now — unsure of whether recent economic growth is a longer-term trend or a short-lived blip — mortgage rates could shoot higher or they could drop, depending on how traders interpret the Fed.
It’s a difficult time to be shopping mortgages in Knoxville Tennessee.
Further complicating matters is Greece’s recent debt downgrade to junk status. A small contagion fear is budding worldwide and, as a result, the flight-to-quality has picked up steam. Mortgage rates are down because of it but could reverse higher at any moment.
Therefore, if you’re actively shopping for a mortgage today, it may be prudent to lock your rate ahead of the Fed’s announcement and any major market reversal. Mortgage rates may fall today, but there’s very little room for them to fall. This is, however, a lot of room for them to rise.
The Fed adjourns at 2:15 PM ET. Call your loan officer to lock your rate.